Encouraging numbers regarding the unemployment rate should be taken with a grain of salt when predicting the date of a cash rate call, according to one leading commentator.
Last week’s ABS data showed the lowest unemployment rate in nearly 15 years, with many analysts suggesting that the resultant upwards pressure on wages might push the Australian economy into the territory in which the Reserve Bank of Australia (RBA) could act.
They have long suggested that they will not change the cash rate from the current record low of 0.1% until wages become substantially higher and thus provoke a need to raise interest rates to combat inflation.
However, one of the most prominent commentators on the issue, Dr Andrew Wilson (pictured), of Bluestone Home Loans, said that the unemployment numbers were unlikely to force the RBA’s hand.
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“A sharp decline in the national jobless rate has predictably resulted in another wave of speculation suggesting official interest rates may rise significantly sooner than the RBA’s current outlook,” he said.
“According to the ABS, the national unemployment rate fell to 4.2% seasonally adjusted over December – the lowest rate since August 2008.
“The low rate unsurprisingly fuelled predictions from the usual suspects of a surge in wages growth stoking higher inflation and resulting in RBA interest rate increases this year.
“The national result, however, was significantly influenced again by the NSW and VIC recoveries from the severe COVID lockdowns of previous months.
“And the short-term outlook for the national labour market remains patchy, reflecting self-imposed voluntary lockdowns set to impact economic performance through January, February and perhaps beyond.
“In those circumstances, employment will likely decline, and unemployment rates will rise as the COVID rollercoaster continues.
“The RBA clearly detailed in its most recent statement that it will not raise rates until wages growth is ‘materially higher than it is currently’ and ‘this is likely to take some time and the board is prepared to be patient’.
“The RBA current outlook for rate increases remains at 2024 – a prediction that was made prior to the re-emergence of the COVID scourge.
“Given current data, the latest RBA statements and a depressing COVID outlook, predictions of official interest rate rises as soon as August are clearly nonsensical.”